Reasons For Decision

I. INTRODUCTION

1. This was a hearing pursuant to section 24.4 of By-Law No.1 of the Mutual Fund Dealers Association of Canada (“MFDA”) to consider a settlement agreement dated August 27, 2020 (“Settlement Agreement”) between Staff of the MFDA (“Staff”) and Deborah Esther Morra (the “Respondent”).
2. After reviewing the Settlement Agreement and the material filed by Staff and hearing the submissions of counsel for Staff and counsel for the Respondent, the Hearing Panel accepted the Settlement Agreement attached as Appendix “1” and signed an order reflecting our approval. These are the reasons for our decision:

II. CONTRAVENTIONS

3. The Respondent admits to one violation of the By-laws, Rules or Policies of the Mutual Fund Dealers Association of Canada (“MFDA”):
   1. Between April 11, 2012 and June 11, 2018, the Respondent obtained, possessed, and used to process transactions 28 pre-signed account forms in respect of 13 clients, contrary to MFDA Rule 2.1.1.

III. THE PROPOSED SANCTIONS

4. Staff and the Respondent agree and consent to the following terms of settlement:
   1. the Respondent shall pay a fine in the amount of $11,500, pursuant to section 24.1.1(b) of MFDA By-law No. 1, in installments as follows:
      1. $2,300, in certified funds, on or before the last business day of the first month following the acceptance of the Settlement Agreement by the Hearing Panel.
      2. $2,300, in certified funds, on or before the last business day of the second month following the acceptance of the Settlement Agreement by the Hearing Panel.
      3. $2,300, in certified funds, on or before the last business day of the third month following the acceptance of the Settlement Agreement by the Hearing Panel.
      4. $2,300, in certified funds, on or before the last business day of the fourth month following the acceptance of the Settlement Agreement by the Hearing Panel.
      5. $2,300, in certified funds, on or before the last business day of the fifth month following the acceptance of the Settlement Agreement by the Hearing Panel.
   2. the Respondent shall pay costs in the amount of $2,500 in certified funds upon acceptance of the Settlement Agreement by the Hearing Panel, pursuant to section 24.2 of MFDA By-law No.1;
   3. the Respondent shall in the future comply with MFDA Rule 2.1.1; and
   4. the Respondent will attend in person or by videoconference on the date set for the Settlement Hearing.

IV. THE AGREED FACTS

Registration History

5. Commencing in 2001, the Respondent has been registered in the securities industry.
6. Since January 29, 2004, the Respondent has been registered in Ontario as a mutual fund salesperson (now known as a Dealing Representative) with Worldsource Financial Management Inc. (the “Member”), a Member of the MFDA.
7. At all material times, the Respondent conducted business in the Nobleton, Ontario area.

Pre-signed Forms

8. At all material times, the Member’s policies and procedures prohibited its Approved Persons from obtaining pre-signed blank forms from clients. The Member’s Approved Persons were only permitted to use a form after it had been duly executed by a client and after the information on the form has been properly completed.
9. Between April 11, 2012 and June 11, 2018, the Respondent obtained, possessed, and used to process transactions 28 pre-signed account forms in respect of 13 clients. The account forms consisted of New Account Application Forms; transfer forms; a Limited Trading Authorization Form; trade tickets and Know Your Client forms.

Member’s Investigation

10. On October 23, 2018, the Member conducted an audit at the Respondent’s branch, during which the Member identified pre-signed account forms in client files maintained by the Respondent.
11. On October 31, 2018, the Member conducted a full branch review and identified pre-signed account forms that are the subject of this Settlement Agreement.
12. On November 13, 2018, the Member sent a letter to all the clients serviced by the Respondent to determine, among other things, whether the Respondent used pre-signed account forms with the clients. No clients responded to the Member with any concerns about the Respondent.
13. On November 19, 2018, the Member sent audit letters and copies of the pre-signed account forms that are the subject of this Settlement Agreement to each of the clients for whom the Respondent obtained pre-signed forms. The letter requested that clients confirm that they had authorized the transaction completed with the form(s) or, if applicable, confirm the changes made on each form and whether these changes were made in their presence and with their authorization subsequent to it being signed and dated.  None of the responses received by the Member indicated any concerns.
14. On November 27, 2018, the Member issued a Warning Letter to the Respondent for the conduct that is the subject of this Settlement Agreement and placed the Respondent on close supervision for a period of 12 months.
15. In November 2019, the Member also conducted a further audit of the Respondent’s branch, during which it did not identify further issues.
16. The Member imposed a $500 fine on the Respondent and deducted $154 from her commissions relating to the client mailings.

Additional Factors

17. There is no evidence that the Respondent received any financial benefit from the conduct set out above beyond the commissions or fees she would ordinarily be entitled to receive had the transactions been carried out in the proper manner.
18. There is no evidence of client loss or lack of authorization for the underlying transactions.
19. The Respondent has not previously been the subject of MFDA disciplinary proceedings.
20. By entering into this Settlement Agreement, the Respondent has saved the MFDA the time, resources, and expenses associated with conducting a full hearing on the allegations.
21. The Respondent has provided financial documentation to Staff demonstrating that she requires monthly installments to pay the fine and costs required in this Settlement Agreement.

V. ANALYSIS

Jurisdiction and Role of the Hearing Panel

22. A Hearing Panel is authorized to either accept or reject a settlement agreement.
    1. Section 24.4.3 of MFDA By-law No. 1
23. The role of a Hearing Panel in reviewing a settlement agreement is to determine whether the proposed penalties agreed to by Staff and the Respondent fall within a reasonable range of appropriateness – not to determine what is, in its view, the correct penalty. A Hearing Panel “will tend not to alter a penalty that it considers to be within a reasonable range, taking into account the settlement process and the fact that the parties have agreed. It will not reject a settlement unless it views the penalty as clearly falling outside a reasonable range of appropriateness.” Mílewski (Re), [1999] I.D.A.C.D. No. 17.
    1. Sterling Mutuals Inc. (Re), 2008 LNCMFDA 16 at para 37
24. Settlements are to be encouraged. They make a significant contribution to meeting the primary objective of investor protection by providing a practical and efficient way of addressing misconduct in the securities industry. Where the Respondent takes responsibility and admits her misconduct and the parties can agree upon appropriate sanctions, settlements can save time and conserve the regulator’s limited resources. Settlements also provide certainty and are likely to result in greater compliance with the sanctions imposed.
    1. British Columbia (Securities Commission v. Seifert, [2006] B.C.J. No 225 at paras. 48-49 (S.C.), aff’d [2007 B.C.J. No 2186 at para. 31 (C.A.)

The Seriousness of the Misconduct

25. The Respondent admitted she obtained, possessed, and used to process transactions 28 pre-signed account forms in respect of 13 clients. The account forms consisted of New Account Application Forms; transfer forms; a Limited Trading Authorization Form, trade tickets, and Know Your Client forms.
26. Obtaining pre-signed forms is a violation of the Member’s policies and procedures and the standard of conduct prescribed by MFDA Rule 2.1.1.
    1. Dias Pereira (Re), [2017] Hearing Panel of the Central Regional Council, MFDA File No. 201652, Reasons for Decision dated September 18, 2017
    2. Baksh (Re), [2019] Hearing Panel of the Central Regional Council, MFDA File No. 201939, Reasons for Decision dated September 20, 2019
27. The seriousness of this misconduct is underscored by the fact that some of it occurred after multiple warnings in Staff Notices and a Bulletin issued by the MFDA against obtaining or using pre-signed account forms. The Respondent was responsible for understanding her responsibilities contained in the relevant Notices and the Bulletin listed below.
    1. MFDA Staff Notice #MSN-0035 dated December 10, 2004
    2. MFDA Staff Notice #MSN-0066 dated October 31, 2007, (updated March 4, 2013 and January 26, 2017)
    3. MFDA Bulletin #0661-E dated October 2, 2015
28. The Respondent’s conduct adversely affects the integrity and reliability of account documents, leads to the destruction of the audit trail, has a negative impact on Member complaint handling, and has the potential for misuse in the form of unauthorized trading, fraud and misappropriation. In Price the hearing panel explained:
    1. Pre-signed forms present a legitimate risk that they may be used by an Approved Person to engage in discretionary trading. As will be discussed more fully infra, the Respondent, in this case, did not have the proper authority to engage in discretionary trading of any nature or kind on behalf of his clients.
    2. At its worst, pre-signed forms create a mechanism for an Approved Person to engage in acts of fraud, theft, or other forms of harmful conduct towards a client. While there is absolutely no suggestion that the Respondent engaged in any of these activities, the rationale for the prohibition on pre-signed forms becomes clear.
    3. Pre-signed forms also subvert the ability of a Member to properly supervise trading activity. They destroy the audit trail. The presence of the client’s signature on a trade form can no longer be taken as confirmation that the client authorized a particular trade. It also compromises the ability of the Member to subsequently investigate and respond to a client complaint concerning the propriety of trading activity in his or her account.
       1. Price (Re), [2011] Hearing Panel of the Ontario Regional Council, MFDA File No. 200814, Panel Decision (Misconduct) dated April 18, 2011
29. We have considered the following aggravating and mitigating factors in reaching our conclusion that the proposed sanctions are appropriate:

Aggravating Factors

30. Obtaining and using pre-signed forms is serious misconduct which the MFDA has warned against for many years.
31. The MFDA has explicitly advised its members that enhanced penalties will be sought where approved persons persist in engaging in this misconduct post Bulletin.
32. The Respondent has been registered in Ontario as a mutual fund salesperson (now known as a dealing representative) for 16 years. She ought to have known and respected the compliance requirements of both her Member and the MFDA. In particular, she ought to have been aware of the Bulletin.

Mitigating Factors

33. There is no evidence of client harm or lack of authorization for the underlying transaction.
34. The Respondent did not receive any financial benefit from engaging in the misconduct at issue.
35. The Respondent has not been the subject of any prior disciplinary proceedings.
36. The Respondent is remorseful
37. The Respondent has saved the MFDA time and money by entering into this settlement agreement.

Ability to Pay

38. MFDA Sanction Guidelines provide that a Respondent’s ability to pay a fine may be taken into consideration in determining the appropriate monetary sanction to be imposed. The agreed facts reflect that Staff was satisfied that the Respondent has a bona fide inability to pay which justified the imposition of an installment plan. We have taken the Respondent’s ability to pay into consideration in concluding that an installment plan is appropriate.
    1. MFDA Sanction Guidelines, p.5 para. 11

VI. COSTS

39. The Costs award is appropriate and consistent with previous MFDA decisions.

VII. CONCLUSION

40. We are satisfied that the proposed sanctions, including the $11,500 fine and $2,500 in costs will serve as specific deterrence to the Respondent and general deterrence to others in the industry who may contemplate engaging in similar misconduct in the future.
41. Staff provided five MFDA decisions which addressed similar misconduct pre and post Bulletin. Based on the number of forms, a review of these cases and taking into consideration the factors discussed above we are satisfied the proposed sanctions fall within a reasonable range of appropriateness.
42. We therefore accepted the Settlement Agreement and made an order reflecting the agreed upon sanctions against the Respondent.